Stock earnings grow in “fundamental sweet spot”

Where’s your fundamental sweet spot?

Canaccord Genuity U.S. Portfolio Strategist Tony Dwyer provided an update on the progress of Q4/12 EPS, the fundamental “sweet spot,” and the tactical condition of the market.

With 14% of SPX reported at the time of his publication, 62% have surpassed reduced expectations by an average of 5%. Bottom-up consensus is currently looking for 2.6% growth versus a year ago. 68% of those reporting revenues have topped expectations, reinforcing his expectations for EPS reacceleration through 2013.

Dwyer’s favored measures of Consumer Sentiment, Employment and Housing continue to trend better from historically weak levels. He refers to this as the “sweet spot” because it means the trend suggests better data coming, but not strong enough releases to bring in fear of the Fed.

While S&P 500 (SPX) made a new recovery high and remains in a well-defined uptrend Dwyer chooses to focus more on the intermediate-term opportunity rather than the chance of a temporary correction given the strength of the intermediate-term uptrend, especially given trend in volatility. All in, while there could be a brief period of consolidation associated with a near term tactical overbought condition, his 2013 SPX target remains 1,650.